2004 Legislation

1. 2004 Legislation State Systems Statewide Systems State and Statewide Systems Other Legislative Topics September 15, 2004

2. State Systems Teachers’ Retirement System of Louisiana • Act 631, effective 7/5/04, restores a previous provision that was inadvertently amended out of the law prohibiting the retention of membership in TRSL when accepting employment covered by the Parochial Employees’ Retirement System. • Act 747, effective 7/6/04, allows for the refund of remaining member contributions to the estate if the member and the beneficiary die before the contributions have been paid to the member or the beneficiary in the form of a benefit. Louisiana State Employees’ Retirement System • Act 194, effective 6/14/04 and known as the “Early Retirement and Permanent Payroll Reduction Act of 2004,” provides for early retirement of members who have reached age 50 and who have at least 10 years of service credit. Members retiring under these provisions must do so prior to January 1, 2006, and accept an actuarially reduced benefit. The positions vacated by the retirements are abolished and can only be recreated by certain processes and approved by the commissioner of administration, the director of civil service, the Legislative Budgetary Control Council, and the Judicial Budgetary Control Board. 2

3. Act 266, effective 7/1/04, amends current law to provide for a default joint and survivor benefit option (Option 3) and to establish benefits due a surviving spouse of a deceased member when the member does not choose a joint and survivor annuity option and fails to provide spousal consent. • Act 26, effective 6/15/04, allows a disability retiree with less than 25 years of service to return to active service for a six-month trial period. If the disability retiree does not work more than six months, the benefit will be reinstated. During the temporary reemployment, no changes in coverage shall occur with the Office of Group Benefits. If the retiree continues to work past the six-month period, he will rejoin LASERS as an active member. • Act 340, effective 7/1/04, repeals certain purchase-of-service provisions and allows members with at least one year of service credit to purchase up to five years of “air time.” Purchases are at actuarial cost and must be made in one-year increments after December 31, 2004. Purchases may be made in monthly increments prior to that date. 3

4. Act 690, effective 7/6/04, exempts a retiree, who has been retired for at least one year and who is appointed to be commissioner of elections, from a reduction in benefits as a result of the appointment. The act also allows certain unclassified employees of post-secondary educational institutions who are eligible to retire, but who join DROP and/or continue working, to elect to receive severance pay any time during continued employment after meeting retirement eligibility. • Act 727, effective 7/6/04, allows employees of Chennault Industrial Air Park to join LASERS on or after July 1, 2004. Also allows judges who were eligible for DROP on March 1, 1999, and who entered the plan but did not complete full participation, to resume DROP participation for the remaining plan period for which they were eligible. • Act 923, effective 7/1/04, extends the LASERS ORP through December 7, 2007, and allows current LASERS members who joined the ORP before July 31, 2002, to retroactively rejoin the defined benefit plan. • HR 142 requests the House Retirement Committee to study provisions of LASERS and to give serious attention to alternative proposals for the operation of the system. The committee is to provide its report prior to the convening of the 2005 regular legislative session. 4

5. All State Systems • Act 588, effective 6/30/04, restructures the state’s recent debt to the retirement systems by changing the amortization period for losses from 15 years or 2029, whichever is greater, to a 30-year period; establishes a minimum employer contribution rate of 15.5% for TRSL and LASERS; establishes Employer Credit Accounts; eliminates the negative balances in the TRSL and LASERS Employee Experience Accounts; provides that balances in the accounts cannot be less than zero; and establishes a COLA payment mechanism from the account balances which cannot exceed the amount needed for two COLAs. • Act 802, effective 7/8/04, requires the state systems to submit operating budgets to the Joint Legislative Committee on the Budget for approval. • Act 851, effective 7/12/04, requires the state systems to submit to the House and Senate Retirement Committees quarterly and annual reports outlining the use of Louisiana incorporated and domiciled broker-dealers. • SCR 12 requires the state retirement systems to comply with the state policies, procedures, and regulations regarding travel, contracts, and procurement. 5

6. SCR 13 directs the Commission on Public Retirement to study the concept of a consolidated retirement system for all employees covered by the current state systems. The consolidated system should be in place to accept all new employees who join on or after July 1, 2006. • SCR 14 directs the office of the legislative auditor to conduct an in-depth financial and compliance audit on the relationships between the state public retirement systems boards and their investment advisors, consultants, and managers. • SCR15 provides for the study of the feasibility of establishing a defined contribution plan and a modified defined benefit plan for the state retirement systems. The study is to be conducted by the Commission on Public Retirement and should include the review of changes in employee contribution rates, definitions of average compensation, retirement eligibility, benefit options, COLAs, DROP, reemployment after retirement, and other factors. The newly created defined contribution plan or the modified defined benefit plan should be available for all new employees who join on or after July 1, 2006. 6

7. Statewide Systems Parochial Employees’ Retirement System • Act 631, effective 7/5/04, sets the default participation period for DROP at 3 years. Participation in DROP can be terminated prior to the end of the 3-year period if the employee terminates employment. Interest on DROP accounts for all members who have completed participation in DROP will be based on a money market rate of return.  Rollovers from 403(b) and 457 plans can be accepted to repay refunds or purchase service credit as provided in statute. The Board of Trustees will have flexibility in setting the employer contribution rate in years when the rate is set to decline. The Board can set the rate anywhere between the previous year’s rate and the newly calculated rate. A provision inadvertently deleted from the Teachers’ Retirement System’s statutes relative to retention of membership was reenacted. There is no longer a choice of remaining in TRSL for full-time employees of participating Parochial employers. 7

8. Louisiana Clerks of Court Retirement & Relief Fund • Act 856, effective 8/1/04, provides for demand upon the state treasurer for delinquent tax revenue. Sheriffs’ Pension & Relief Fund • Act 781, effective 7/1/04, increases the allowable earnings for retirees returning to work in a sheriff’s office on a part-time basis. Retirees can earn 50% of their final average salary for the first two years. After two years, they can earn 55% of their final average salary.  • Act 782, effective 10/1/04, authorizes the Board of Trustees to set the employee contribution rate within a range of the current 9.8% up to a maximum of 10.25%. Two tenths of 1% of the additional funding authorized will be used for purposes of sharing in the cost of the 2004 legislative package. The balance of ¼ of 1% will be available for future funding needs to lessen the impact on the employer contribution rate in funding shortfalls due to market conditions. • Act 854, effective 7/1/04, allows the return of employee contributions for the period of Back DROP selected by the member at retirement. • Act 855, effective 7/1/04, provides for a nonrecurring lump-sum COLA to retirees in the amount of 3% of the annual benefit with a $300 minimum. 8

9. Act 866, effective 7/1/04, allows those members who previously participated in DROP to rescind that participation and restore creditable service. The member must pay employee contributions that were not paid during the DROP period, plus interest to date. In addition, the amount previously accumulated in DROP is forfeited. Upon rescinding the prior participation in DROP, the member is eligible for Back DROP upon retirement. • Act 807, effective 7/1/04, provides for third-party management of DROP and Back DROP funds left on deposit by members. The members will receive interest at the rate earned by the manager. Assessors’ Retirement Fund • Act 263, effective 8/15/04, is a technical amendment relative to the application of excess funds that result when the board increases the employer contribution rate above the actuarially required rate. •  Act 268, effective 8/15/04, allows the repayment of refunded member contributions when a former member is reemployed. Requires a lump-sum repayment. 9

10. Act 774, effective 10/1/04 - If a member takes an actuarially reduced benefit under Option 2, 3, or 4, the actuarial equivalent and option reductions shall be calculated based on the ages of the member and his spouse at the member’s 60th birthday. For a nonspousal Option 4 benefit, the computation will be based on the ages of the member and beneficiary as of the later of the date of the member’s retirement or the member’s 60th birthday. A calculation for a spousal benefit payable upon the death of a member who dies while in service shall be based on the ages of the member and his spouse as of the member’s 60th birthday. • Act 794, effective 8/15/04, brings the plan into compliance with existing provisions of the Internal Revenue Code. • Act 860, effective 8/1/04, requires all tax recipient agencies of ad valorem taxes to furnish the legislative auditor with the authorizing resolutions, tax rolls, and the tax rate to be applied to assessed values by June 1 of each year. Requires the board to certify to each sheriff and ex officio tax collector that all funds due have been received. Requires the board to calculate any shortfall, take reasonable steps to determine the cause, and certify the shortfall and cause to the legislative auditor. Requires the legislative auditor to certify amounts due as correct. Provides a remedy for past-due amounts. Empowers the fund to make demands on the state treasurer for monies due. 10

11. Municipal Employees’ Retirement System •  Act 264, effective 6/15/04, allows a mayor who is receiving a retirement benefit from another source and who is over 65 years of age to opt out of membership in the system. A mayor who is already a member meeting these criteria can terminate membership in MERS. Firefighters’ Retirement System • Act 532, effective 6/25/04, removes provisions authorizing retirees to participate in DROP and clarifies that retirees are not paid interest on their DROP account during periods of reemployment. 11

12. All Statewide Systems • Act 850, effective 7/12/04, authorizes those systems that were not included in 11:267 (A) to invest up to 65% of the portfolio in equities, provided at least 10% of the equity portfolio is in one or more index funds. This provision applies to State Police Employees’ Retirement System, Municipal Employees’ Retirement System, Municipal Police Employees’ Retirement System, Clerks of Court Retirement & Relief Fund, Parochial Employees’ Retirement System, Registrar of Voters Employees’ Retirement System, Firefighters’ Retirement System, District Attorneys’ Retirement System, and the Sheriffs’ Pension & Relief Fund. Permits assessors to participate in an eligible deferred compensation program established in accordance with Section 457 of the Internal Revenue Code. 12

13. State and Statewide Systems • Act 26, effective 8/15/04, changes the term “legitimate children” to “children born of marriage” and the term “illegitimate children” to “children born out of marriage.” Retirement system statutes using these and other terms, such as “natural child,” have been amended to incorporate the new terminology. • Act 207, effective 6/14/04, amends existing legislation regarding trustee education by adding one hour of required education in the area of laws, rules, and regulations applicable to a trustee’s system. The 12-month period during which the required 12 educational hours must be obtained has been changed from the calendar year to the period between September 1 and August 31. One hour must be obtained in the areas of investments, actuarial science, fiduciary and ethics responsibilities, and in system laws, rules, and regulations before per diem can be earned and before new trustees are able to vote. 13

14. Act 275, effective 6/15/04, requires retirement systems to submit operating budgets to the Joint Legislative Committee on the Budget by November 15 for review or approval. The budget committee must approve those budgets submitted by the state retirement systems and any proposed modifications that are requested throughout the fiscal year to that approved budget. • Act 68, effective 7/5/04, requires consultants and money managers to disclose conflicts of interest. Consultants are also required to disclose any payments received from money managers in hard or soft dollars. • Act 706, effective 7/6/04, provides that any retirement benefit or refund paid by any public retirement system shall be subject to garnishment or court-ordered assignment to pay child support. • Act 868, effective 1/1/05, requires that each person seeking to obtain business with a retirement system report to the board of ethics expenditures that exceed $500.00 on any retirement systems or officials during a 12-month period. Expenditures that exceed $50.00 on any one retirement official on one occasion, or which exceed $250.00 during a 6-month reporting period on any one retirement official must be reported by occasion by official. The act becomes effective January 1, 2005. 14

15. Act 868 (continued) A retirement system official is defined as a member of the board of trustees, any public employee of a system, or an employee of the department of the treasury who assists any retirement system. Summarized reports must be submitted to the Board of Ethics Administration by August 15 for the period January 1 through June 30 and by February 15 for the period July 1 through December 31. Vendors are responsible for filing timely and accurate reports on forms to be prescribed by the Board of Ethics Administration. The penalty for submitting late or inaccurate reports is $100 per day until the report is filed or corrected. The act requires the chairman of the board of trustees or a retirement system official to provide a copy of Act 868 and information relative to gift restrictions and conflicts of interest provisions of the Code of Governmental Ethics to every person associated with the board or who is required to file a report. The contents of this notice will be prescribed by the Board of Ethics Administration. The act also requires that a copy of such notification be forwarded to the Board of Ethics Administration no later than 15 days after the original notification is provided to the vendor. Failure of a chairman or a retirement system official to notify those required to file reports does not relieve any person from the reporting requirements or any of the penalties associated with the failure to comply with Act 868. 15

16. HCR 202 memorializes Congress to consider the elimination of provisions that reduce Social Security benefits for those receiving benefits from federal, state, or local retirement systems. 16

17. Other Legislative Topics • HB 1136 and SB 573 would have allowed for the sale of pension obligation bonds to help finance unfunded accrued liability payments to TRSL and LASERS. Both of these bills were deferred in committee. • HB 1271 and SB 243 would have allowed legislative employees to accrue benefits at 3.0%. An increased employee contribution of 1.5% was designed to pay for the additional cost associated with the benefit increase. Leave could have been used for eligibility. Both of these bills were vetoed by Governor Blanco. • HB 1161 would have created a defined contribution plan for LASERS beginning July 1, 2007. • HB 1630 would have made major changes to LASERS beginning January 1, 2006, including the increase of employee contributions to 8.5%, elimination of DROP, computing final average compensation on 60 months of salary, retiring at age 55 or older, adjusting retirement options to include a lifetime annuity or a joint and survivor benefit, graduating accrual rates depending upon age at retirement, and pre-funded COLAs. 17

18. SB 792 would have eliminated LASERS’ current retirement eligibilities and required members to be at least age 60 and have at least 10 years of service to be eligible for retirement. • SCR 114 would have requested the Commission on Public Retirement to study the feasibility of requiring the commission to review and approve, prior to introduction, all proposed legislation affecting retirement. 18